By EARL ANTHONY WAYNE, former U.S. ambassador to Mexico
This is a make-or-break time for the NAFTA talks. Trade ministers from the United States, Mexico and Canada started a new round of talks in Washington on May 7. U.S. Trade Representative Robert Lighthizer says he hopes to have an agreement by mid-May, but there is much to resolve in order to meet that goal.
The many millions of stakeholders who will gain from a modern NAFTA need to pay close attention and be ready to urge that this moment of opportunity not be lost in disagreement.
If the trade ministers can find ways forward on difficult topics such as rules of origin for autos, investors’ protections, dispute settlement and a sunset clause for the treaty, they would then instruct their officials to work over the weeks ahead to complete a detailed treaty text.
The last round of talks focused largely on the auto rules of origin issues, where the United States put forward a very complex proposal that included pressure for the Mexicans to raise autoworker wages.
Because of the tight legislative schedule needed to get an agreement through the U.S. Congress in this legislative session and due to the Mexico’s July 1 presidential and congressional elections, the negotiators must work full bore.
Unless the three governments can find compromises, the “modernization” of NAFTA will be delayed until after a new Mexican government takes office in December. Mexico’s new president could take some different positions on NAFTA issues, as could s new U.S. Congress. A delay would result in costly uncertainty for farmers, ranchers, workers and businesses across the United States and North America.
Also at stake is vital U.S. cooperation with Mexico and Canada on homeland security issues. The United States gains immensely from cooperation with Canada and Mexico as that collaboration extends U.S. security far beyond America’s physical borders. The United States and Mexico, in particular, have greatly improved cooperation on managing the border, fighting drug trafficking, and cooperating against potential threats from terrorists and other bad actors before they reach the United States.
There is much to do to make that security cooperation more effective. U.S. President Donald Trump’s recent criticisms of Mexico over migration and the border, however, united Mexico’s diverse presidential candidates in criticizing the United States. Mexico’s Senate also called for suspending U.S.-Mexico homeland security cooperation. Mexican President Enrique Pena Nieto made a tough speech to the nation in response to the U.S. criticisms and ordered a review of all cooperation with the United States. Mexican officials say privately that they do not understand why President Trump does not value what Mexico is doing to bolster security cooperation.
In recent days, President Trump also raised the idea of putting a clause into NAFTA to the effect that Mexico must stop migrants from crossing into the United States from Mexico, sparking a sharp rebuff from Mexico’s foreign minister. The idea of adding nontrade related items to NAFTA could further complicate the negotiations: What would the United States think if Mexico asked for a NAFTA pledge by Washington to stop U.S. arms flowing illegally into Mexico or the billions of dollars in drug sale profits heading from the United States to criminal gangs in Mexico?
This clash over migration comes in the heat of Mexico’s presidential and congressional campaigns, so the potential for fanning anti-American sentiment is great. Two recent polls show between 56 and 65 percent of Mexicans hold unfavorable views of the United States.
The next Mexican presidential debate will be in the border city of Tijuana on May 20, with U.S.-Mexico relations, the border and drug trafficking as likely topics. If a more anti-U.S. government and congress emerge from Mexico’s elections, the longer-term costs for the United States will be high.
Here’s what’s at stake for the United States in terms of NAFTA:
Trade: NAFTA trade totals some $1.2 trillion a year to Mexico and Canada. Those two neighbors are America’s top two export markets. An end to NAFTA could cause cost the U.S. economy over $100 billion, according to studies and would seriously harm various U.S. sectors including agriculture. food, livestock and motor vehicles.
Energy: Since 2015, the United States has had an energy trade surplus with Mexico. With Mexico’s 2013 energy reforms opening the sector to private investment, U.S.-Mexico energy trade has blossomed in ways that help strengthen North America’s energy security. Mexico’s leading presidential candidate Andrés Manuel López Obrador, however, is a critic of Mexico’s energy reforms. Recently, he announced that, if elected, he would seek to stop upcoming exploration auctions, reduce the sale of Mexican crude oil abroad, shift investment to building new refineries (rather than using U.S. refineries) and freeze domestic gasoline prices for three years. The strong investor protections currently in NAFTA are thus more important to help protect U.S. energy investments and to maintain energy commerce with Mexico.
Security Cooperation: The current cooperation between U.S. and Mexican federal law enforcement, intelligence and security agencies is unprecedented against cross-border crime, illegal migration from Central America and potential threats from terrorists and other bad actors. In the last few years, Mexico has apprehended over 500,000 Central American migrants, greatly easing the burden at the U.S. border. (Immigration from Mexico has been declining since 2007 and more Mexicans have been returning home than headed north to the United States in recent years.) The United States and Mexico agreed on a joint strategy against the drug cartels in 2017. Such collaboration is why 10 former top U.S. military commanders wrote President Trump supporting NAFTA. The president’s critical tweets about Mexico and border security have made it harder to maintain such homeland security cooperation, however.
A more competitive America
China is America’s biggest economic competitor in the world. Canada and Mexico provide the skills, investment and market specialization for the United States to compete more effectively against China and other global commercial powers. A revitalized NAFTA will help America do that better. A new agreement will incorporate digital and internet commerce, as well as other innovations and best practices from the last 25 years. An updated NAFTA can also encourage more efficient and secure cross-border trade. According to the Perryman Group, enhancing economic integration across the U.S.-Mexico border can add many new jobs and economic growth in U.S. and Mexican border state economies.
Trade officials are working intensely to achieve breakthroughs in early May. They are focusing on the most divisive issues. These include rules of origin for autos (the level of required U.S. and North American content in cars), a sunset clause (an option for any country to pull out every five or so years), dispute settlement mechanisms (special means for protecting investors and for settling disagreements among governments), several agricultural issues and limits on government procurement opportunities.
All three countries must be creative and flexible in addressing these and the other remaining difficult issues in the days ahead. Mexico must also accept strong provisions on labor rights. Canada needs to compromise on issues including its dairy protections. Mexico wants the United States to drop a demand on seasonal agricultural products. Both neighbors and many in the business community remain very concerned about the U.S. positions on several of these issues.
Much work remains. Yet, negotiators say agreement on major items is possible with good will and creativity. Yet, even the optimists add that agreement is far from assured.
America has much to gain from a long-term partnership with Mexico and Canada that helps to assure U.S. prosperity and security. Those “stakeholders” who benefit from the massive trade and production networks in North America need to pay close attention now and be ready to engage actively to encourage constructive agreements.
Earl Anthony Wayne is a public policy fellow at the Woodrow Wilson Center and career ambassador (ret) from the U.S. Diplomatic Service, where he served as U.S. ambassador to both Mexico and Argentina, as well as assistant secretary of State for economic and business affairs.